The Key to Shopping 2.0 Success: Empowering Customers

Even the titans of online retailing struggle with how to tackle the challenge of delivering personalization. Most techniques for generating personalized product recommendations involve identifying which items tend to be purchased together. While this approach effectively groups products by interest, it doesn't get to the heart of treating each consumer as an individual.

By Philip Jacob
11/30/07 4:00 AM PT

Shopping online has become a favorite activity for consumers. However, retailers still haven't successfully replicated the experience of uncovering the perfect item hidden on the back of a rack, the thrill of unexpectedly wandering into an out-of-the way boutique, or the way friends bond over dressing room disasters. Technology that improves the online shopping experience is evolving rapidly, but to properly take advantage of what's coming down the pike, retailers will need to go back to basics.

It turns out that the secret to e-commerce success is the same thing that drives offline sales: merchandising. However, not in the traditional sense of product mix or price points. The future of online merchandising is all about empowering customers to create their own shopping experience -- turning them into brand advocates while creating a much more authentic online shopping experience.

Personal choice and customization is the name of the game on today's Web. Before it's too late, retailers should take some lessons from failed attempts to keep control over access to merchandise. The music industry tried to maintain an iron-fisted control over the production and distribution of their product and failed miserably as music lovers dragged the record companies kicking and screaming into the future. Look at parts of the advertising industry -- shifting control and creating networks has made Google into a US$200 billion giant.

Consumers are demanding a more personal experience online. The growth of social networking sites like Facebook and MySpace has created a whole generation of consumers accustomed to being at the center of their own worlds. Facebook, for example, serves as a personal CNN.com, providing a news feed of everything that's happening with one's friends and affinity groups.

The advent of IM and texting has made it easy to get information or advice from others around the clock. However, online retailers are lagging behind in recognizing the extent to which plugged-in consumers want to be catered to and recognized as unique individuals.

Thousands of Personal Stores

Even the titans of online retailing struggle with how to tackle the challenge of delivering personalization. Most techniques for generating personalized product recommendations involve identifying which items tend to be purchased together. While this approach effectively groups products by interest, it doesn't get to the heart of treating each consumer as an individual.

Retailers have also turned to customer profiling, but even this paints only a partial picture; we've all had the frustrating experience of getting recommendations for doilies and Lawrence Welk CDs just because we happened to buy a gift for Great Aunt Gladys on our last visit.

The problem with these techniques is that they focus solely on implicit tracking behavior, without getting to a deeper understanding of the customer's innate tastes and preferences. The good news is that consumers are more willing than ever to share information about what they like.

Social shopping sites allow consumers to keep track of the products that catch their eye and share wish lists of items they want. They're holding up their hands and saying, "I like this particular product, I want it, it represents me," providing rich data to retailers who want to communicate with users who have indicated an interest in a their brand on a one-to-one basis, right down to pushing incentives for a specific SKU (stock keeping unit).

A Mental Shift

Even more powerful are increasingly sophisticated collaborative filtering methods that take advantage of the wisdom of crowds. By overlaying consumer preference data, it's possible to pair a shopper with "StyleTwins" who share their taste, and presumably, product preferences. Identifying these preferences should enable mainstream retailers to recommend the perfect item among hundreds of SKU and small, independent retailers on the end of the long tail to identify consumers likely to love their offbeat products.

Of course, it takes a little work on the part of the customer to provide data on their preferences -- whether through rating, bookmarking or more detailed customer profiles. However, if the process is fun and engaging, and the payoff is the ability to walk into a store filled only with products that appeal to them, they're likely to put in the effort.

This requires a mental shift on the part of retailers, who should be moving away from merchandising one retail destination toward the creation of distributed micro-network stores. By allowing your customers to effectively rebuild your product catalog on their own terms, you give a degree of mobility to your merchandise such that allows it to become part of the social fabric of the Web.

Merchandising Effectively Online

So, if the ultimate goal is to make each customer feel as if they're entering an online store designed just for them, how does merchandising come into play? To find the answer, we asked a group of online shoppers an unaided question about what they wished they could do when shopping online. Answers fell overwhelmingly into three categories:

"Find stuff I like faster." This request reflects a desire for an online product discovery process that mimics the surprise and delight of making an unexpected find in a brick-and-mortar store. This is where collaborative filtering techniques come into play by serving up accurate and personal product recommendations, not to mention introducing a social element by connecting shoppers with similar tastes.

"See what the product looks like/would look like on me." There's a lot of progress being made in this area, as retailers get more creative in reducing return rates. Some have built proprietary solutions -- online apparel retailer MyShape.com collects customer measurements and makes recommendations based on body shape, right down to prepopulating the correct size.

Others have partnered with a third-party; My Virtual Model allows shoppers to build an online avatar that can "try on" clothing to see how it will look on its real-life counterpart. Surprisingly, a lot of online retailers forget the basics, like providing complete product specs and multiple, large photos taken from various perspectives.

"Find cool new products." Be cognizant of facilitators who can help drive sales inside otherwise impermeable networks, such as social networking sites and influential blogs; friends on social networking sites like Facebook and MySpace can be a great source of information about products. While a site designed entirely in Flash might look great, the technology creates misalignment with the goal of being open. Social shoppers won't be able to bookmark or email links to your products, and you'll be completely invisible to a search engine pulling your product metadata.

Let Your Customers Merchandise for You

The one move that has perhaps the most potential to revolutionize online merchandising is also the scariest for retailers. In addition to thinking thoughtfully about how to merchandise in the space you control completely -- your online store -- it's time to let your customers start merchandising for you.

In fact, they're already doing it, creating their own virtual storefronts, filled only with products that appeal to them; marketing their personal stores on blogs and social networking sites through the use of widgets; and discovering products by browsing stores created by other users.

Creative, customer-driven merchandising across a number of online properties drives sales. Having trouble visualizing how to put your customers to work?

Here's an example: Dualstar Entertainment, the retail powerhouse run by young fashion icons Mary-Kate and Ashley Olsen, was looking for ways to differentiate the two moguls from one another, while forging a more intimate connection with fans. Partnering with StyleFeeder, the twins placed wish lists that reflected their personal style -- from Neiman Marcus boots to their branded lipstick -- on their fan site. Fans then created their own widgets which included Olsen-branded products and placed them on their blogs and social networking profiles, propagating the products across thousands of web pages. StyleFeeder quickly became the second-highest referring site to the Olsen's online store (after Google) and helped Dualstar sell out of several SKUs.

The Power of Recommendations

Customer merchandising makes sense because it's driven by the power of recommendations. Sixty percent of e-commerce purchases are influenced by recommendations from friends or family, according to a 2006 survey by Yahoo Small Business and Harris Interactive.

Clearly, shoppers value advice from people they know, yet most retail sites provide no mechanism to enable "dressing room advice" that can lead to an immediate sale. Recommendations from strangers can be just as powerful -- after all, haven't social networking sites changed the way young consumers define the word "friend"? Smart marketers won't be afraid of shifting control because they understand the viral power of allowing their most passionate brand advocates to spread the gospel and help others discover their products.

The bottom line: An open approach that embraces the new realities for consumers who are looking to drive their own online experiences is the future for e-tailing. Centralized control loses in every scenario. As the famed novelist William Gibson said, "The future is already here -- it's just unevenly distributed."